Understanding taxes as a young adult

Taxes are one of those subjects we never get taught when we are in school, but they end up being everywhere as we enter the adult world.

Taxes are essentially a form of payment which everyone makes to the government or relevant body of people for the pleasure of a commodity. For example, we pay our government tax every month which gives us the luxury of healthcare, public services and residency.

Perhaps the most confusing element about taxes isn’t just what they are, but how we pay them and what the different types are. You might have heard terms like best tax preparer, National insurance, VAT and more, and wondered exactly what they signify. Well, here we are…

Types of tax

  • Paid on income: Social Security, Medicare, Federal, State
  • Paid on unearned income: interest, dividends

There are also other types of taxes which don’t quite fall into either of these categories and therefore lie in the middle ground. Examples of these are Payroll taxes, sales taxes, property taxes surcharges, tariffs, duties, assessments, and licenses.

Taxes can be a complex thing but it essentially means that you are paying a certain amount of extra money on top of a product or service for the pleasure of being able to use that product or service. You will also get tax on items which are known as sin taxes. These are taxes on items such as alcohol, casinos, guns, cigarettes and anything else which is deemed an addiction.

Tax returns

If you have ever worked as a freelancer or on your own, you will know that you will have to sort out your tax and pay it yourself. When we are employed by a business, they will usually take care of the tax because it is their responsibility to make sure that all of their employees are paying it. It means that all you see is a value coming out of your account every time you are paid. When it comes to filing for a tax return yourself it can be a daunting thing. The key to filing your tax return successfully is to be 100% accurate on your earnings within that period of time. Are sure you count up your pay checks and declare every piece of money you are earning so that you can’t be called out later.

The process of filing for a tax return isn’t as difficult as you may imagine, it is done with a form which you will fill in and send off to the relevant body. They will then assess the information you have presented to them and come up with a value which you will owe as tax. You then have the full year to pay that tax back before the next tax year begins. This means that if you are caught out and shocked by the tax value, you do have time to come up with the money. You can even do a tax calculator online to give you a better idea of what to expect.